ILSFDA and the Single Family Residence Exemption

May 18, 2010

In our previous article, we discussed the general provisions, applicability and implications of failing to comply with the Interstate Land Sale Full Disclosure Act (ILSFDA or the Act). The article below details the extensive requirements of the Single Family Residence Exemption under the Act, which if a Developer complies with ALL of its requirements, exempts the Developer from the registration requirements but not the disclosure requirements, of the Act for those sales.

To qualify for the exemption, each of the following two separate subdivision requirements and eight separate lot eligibility requirements must be satisfied.

  1. Subdivision Requirements
    1. The subdivision, or if incremental development is permitted by the local code only those portions of the subdivision being offered at any given time, must meet all local codes and standards.
    2.  The promotion plan for the subdivision may not offer, by any means or instruments of interstate communication, gifts, trips, dinners, or other inducements to visit the subdivision or purchase lots.
  2. Lot Requirements (Each lot must comply with each requirement.)
    1. Each lot meets the minimum standards of development specified by the local government or state where such lot is located, lots located in jurisdictions that lack these standards are not eligible for this exemption. The jurisdictional regulations must include standards for:
      1. Lot Dimensions
      2. Plat Approval & Recordation
      3. Roads & Access
      4. Drainage
      5. Flooding
      6. Water Supply
      7. Sewage Disposal
    2. Each lot sold must either be zoned for single family residence or, if there is no zoning ordinance in effect, restricted by covenants or restrictions to single family residences which include manufactured homes, townhouses, and residences for one to four family use.
    3. Each lot must be located on a conforming street or highway which is acceptable to the local jurisdiction, or if the street is incomplete, the Developer must have posed a bond or other surety with the local jurisdiction for the full cost of completion.
    4. The HOA or local jurisdiction must have accepted or be obligated to accept the maintenance obligation for the street. If the HOA is obligated to maintain the street, the HOA must provide a good faith estimate of the maintenance cost for the first 10 years of its obligations.
    5. Water, Sewage and Electricity
      1. At the time of closing, potable water, sewage, and electricity must be extended to the property or the local government must be obligated, by statute or agreement, to install these utilities within 180 days after closing. 
      2. Subdivisions without Central Water or Sewage
        1. Developer must provide assurances, which may be from a hydrologist or the local health department, that there is adequate year-round access to potable water for the subdivision.
        2. Developer must provide assurances that each lot is approved, or will be approved at closing, for the installation of a septic tank. Failure to secure approvals and close within 180 days of the contract date puts Developer at risk for losing its exemption.
    6. Contract for sale must have a closing date and close within 180 days of contract execution, and Developer must convey by warranty deed free of monetary liens or encumbrances.
    7. At time of closing a current title commitment, policy, or title opinion given to the purchaser showing that marketable title to the lot is vested in the seller and that the lot is only subject to exceptions approved in writing by the purchaser.
    8. The purchaser or purchaser’s spouse must personally inspect the lot prior to contract execution.

Any lot that does not meet ALL of the above requirements and otherwise falls under the jurisdiction of the Act, must either qualify for another exemption or comply with the requirements of the Act.

If you have any questions about the provisions of this exemption or the requirements of the Act, please contact a real estate attorney.

Please contact us if you have concerns or questions. For more information, visit our Greater Washington-Baltimore Region Transactional Real Estate practice.